Could the Israel-Hamas war push gas back up to $5 a gallon? Oil prices surge more than 5 percent after shock attack

Motorists could soon face higher prices at the gas pump after Hamas launched an attack on Israel this weekend, heating up geopolitical tensions in the oil-rich region.

When oil markets opened on Monday morning, West Texas Intermediate, the benchmark US crude jumped 5 percent, surpassing $87 a barrel, Bloomberg reported.

Although Israel and Palestine are not major oil producers themselves, the fighting, which has killed more than 1,100 people so far, is already having repercussions across the broader region.

The conflict could heighten tension between the US and Iran, which according to a report in the Wall Street Journal helped plot the attack on Israel with Hamas.

Iran is a major supplier of oil to the US and could restrict shipments if it is lumped with sanctions. Gas prices reached a record high of $5.02 in June 2022, in the months after Russia’s invasion of Ukraine and subsequent sanctions by the West.

Last week gas prices fell to an average of $3.74 a gallon – it usually takes more than a week for oil prices to impact the cost of gas

Oil giant Shell’s stock on the FTSE 100 soared on Monday 

It comes as last week gas prices fell to an average of $3.74 a gallon, prompting some analysts to predict Americans will soon experience relief from soaring fuel costs thanks to the decreasing cost of oil.

On Monday gas was down to an average of $3.70, according to the AAA. 

It usually takes more than a week for the cost of oil to start impacting the cost of gasoline – around half the amount Americans pay for gas is the price of the crude oil refined to produce it.

Craig Erlam, marker analyst for broker OANDA, told Reuters: ‘Should the spotlight turn towards Iran, there’s a possibility of stricter sanctions being imposed, potentially leading to supply constraints and tightening conditions within the market.’

The conflict could also derail Biden administration’s efforts to improve relations between Israel and Saudi Arabia – jeopardizing hopes of commitment from the Saudis to boost its oil production.

Saudi officials reportedly on Friday told the White House they were willing to raise output next year as part of the proposed Israel deal. 

‘At this stage, the price response that you’ve seen is quite understandable and proportionate, just in terms of putting a bit of risk premium in,’ Marcus Garvey, head of commodities strategy at Macquarie Group, said in a Bloomberg TV interview.

Although Israel’s oil production is limited in the grand scheme, in the last two decades Israel it has become an increasingly prominent producer and earlier this year exported for the first time. 

On Monday, Chevron said it was told by Israeli officials to shut down the Tamar oil field (pictured)

Experts said last week that gas prices could be on their way down. Pictured: the states with the highest and lowest gas prices as of Friday

On Monday morning, Chevron said it was told by Israeli officials to shut down Tamar, an offshore oil field around 12 miles from Gaza, citing safety concerns.

‘People will draw parallels to the early 1970s’ Yom Kippur War that’s probably, with the following embargo, your extreme case. It’s quite plausible you get no meaningful disruption,’ he added. 

That also happened before in 2021 when fighting amid fighting.

‘Our top priority is the safety of our personnel, the communities in which we operate, the environment and our facilities,’ the company said in an announcement on Monday.

Israel’s largest offshore gas field, Leviathan, continues to operate normally, Chevron said.